Borrayo v. Lefever

• Decision Date: 29 June 2006
• Docket Number: No. 05CA0160.,05CA0160.
• Citation: 159 P.3d 657
• Parties: Evelinn A. BORRAYO, Plaintiff-Appellee, v. James LEFEVER, Defendant-Appellant.
• Court: Colorado Court of Appeals

159 P.3d 657

Evelinn A. BORRAYO, Plaintiff-Appellee, v. James LEFEVER, Defendant-Appellant.

No. 05CA0160.

Colorado Court of Appeals, Div. III.

June 29, 2006.

Rehearing Denied September 7, 2006.

The R.S. Irving Law Firm, LLC, Robert S. Irving, Fort Collins, Colorado, for Plaintiff-Appellee.

Montgomery, Kolodny, Amatuzio & Dusbabek, L.L.P., Peter S. Dusbabek, Cara J. Stegemann, Fort Collins, Colorado, for Defendant-Appellant.

Opinion by Judge GRAHAM.

Defendant, James Lefever, appeals from the trial court's orders (1) denying his motion to set aside default judgment; (2) denying his claim of exemption; and (3) disbursing the garnished funds to plaintiff, Evelinn A. Borrayo. This appeal primarily concerns the trial court's refusal to set a hearing on and denial of defendant's claim of exemption based on his noncompliance with a previous court order. We affirm.

Following the termination of a nonmarital relationship, plaintiff sued defendant for money owed on a loan. Plaintiff's suit was consolidated with defendant's replevin action asserting ownership of a Labrador Retriever dog. The trial court set the consolidated actions for a bench trial on June 29, 2004. When defendant failed to appear for trial, the court entered default judgment in favor of plaintiff and against defendant in the amount of $18,400, plus costs and prejudgment interest. The court also awarded plaintiff sole possession and ownership of the dog and ordered defendant to return the dog to plaintiff.

Thereafter, plaintiff served a writ of garnishment with notice of exemption on defendant. On September 22, 2004, defendant filed a claim of exemption with the court and argued that the funds were exempt from garnishment because they consisted of proceeds he received from a workers' compensation settlement. The trial court refused to set a hearing on defendant's claim of exemption based on its finding that defendant was not in compliance with its order to return the dog to plaintiff. The court concluded:

It is inequitable . . . and improper, for the Court to permit Defendant to come before the Court and seek relief, such as ruling on a claim of exemption, when Defendant is refusing to obey an order of the Court. Therefore the Court will not set a hearing on the exemption claim at this time, and the garnishment may proceed. If and when Defendant demonstrates that he is in compliance with the prior order the Court will set such hearing.

When defendant subsequently informed the court that he was in compliance with the court's order, the court set a hearing for October 26, 2004. During the hearing, the court learned that defendant still had not fully complied with its order awarding sole possession and ownership of the dog to plaintiff because he continued to dispute the dog's ownership through the Florida court system. Based on his continued noncompliance with its order, the court denied defendant's claim of exemption and ordered that the garnished funds be disbursed to plaintiff.

On December 7, 2004, defendant filed a motion to set aside the default judgment and claimed that he did not appear for the trial because he believed it was cancelled when he withdrew his replevin action. The court denied defendant's motion on December 9, 2004, and stated that it was unclear from defendant's motion whether he sought relief from the original judgment or from its order denying his claim of exemption. The court found that if defendant sought relief from the original judgment, his motion was denied because he did not show any ground for relief. The court further found that if defendant sought relief from its denial of his claim of exemption, his motion was denied because he continued to be in noncompliance with its order regarding possession and ownership of the dog. The court then concluded that the issue was moot because the funds had already been disbursed to plaintiff.

I. Default Judgment

Neither party addressed the sufficiency of the default judgment, and so we decline to address that issue here.

II. Hearing on Defendant's Claim of Exemption

Defendant first contends that the trial court erred when it refused to set a hearing on his claim of exemption to plaintiff's writ of garnishment. We agree, but conclude that the error was harmless.

A trial court is required, without exception, to set a hearing within ten days after the filing of a claim of exemption. See § 13-54.5-109(1)(a), C.R.S.2005; C.R.C.P. 103(6)(c)(1); see also Ortiz v. Valdez, 971 P.2d 1076 (Colo.App.1998). At the hearing, where all interested parties may testify, the court must determine the validity of the claim of exemption and must enter judgment in favor of the judgment debtor to the extent the claim of exemption is valid. See C.R.C.P. 103(6)(c)(4); see also § 13-54.5-109(2), C.R.S.2005 ("the court shall summarily try and determine . . . whether the property held by the garnishee is exempt and shall enter an order or judgment setting forth the determination of the court").

Ordinarily, it is reversible error for the trial court to fail to hold a hearing pursuant to C.R.C.P. 103(6)(c)(1) and § 13-54.5-109(1)(a). See Fed. Deposit Ins. Corp. v. Bowen, 865 P.2d 868 (Colo.App.1993) (no reversible error where the trial court held a hearing at which the parties were permitted to present evidence); Maddalone v. C.D.C., Inc., 765 P.2d 1047 (Colo.App.1988) (trial court reversibly erred when it failed to hold a hearing on the issue of the validity of the debt in a garnishment proceeding and garnishees were not given an opportunity to present evidence in support of their contention that the note was invalid).

Here, the trial court refused to set a hearing on defendant's claim of exemption until defendant complied with its order regarding the possession and ownership of the dog. Such refusal is in direct contravention of the requirement that the court set a hearing upon the filing of a claim of exemption. The setting of a hearing under C.R.C.P. 103(6)(c)(1) and § 13-54.5-109(1)(a) is not discretionary.

Although C.R.C.P. 107 authorizes a court to impose a fine or imprisonment against a person who disobeys, resists, or interferes with a court order after the required contempt proceedings, it does not authorize a court to suspend a hearing required by statute until the person complies with a court order.

We conclude that the trial court erred when it sanctioned defendant for his failure to comply with a court order by refusing to set a hearing on his claim of exemption. However, as discussed in Section III below, the error was harmless because, even if the court had held a hearing, the outcome would have been the same. See C.R.C.P. 61; Am. Nat'l Bank v. First Nat'l Bank, 28 Colo.App. 486, 476 P.2d 304 (1970).

There are no material facts in dispute. Even if we were to assume that all the funds in defendant's account were proceeds of the workers' compensation settlement, the result would not change. Hence, reversing the order of the trial court would provide no practical relief and would not serve the interests of justice.

III. Denial of Defendant's Claim of Exemption

Defendant next contends that the trial court erred when it denied his claim of exemption based upon his failure to comply with the court's order regarding possession and ownership of the dog. We uphold the ruling of the trial court but on grounds different from those relied upon by the trial court.

The trial court is required to stay garnishment proceedings upon the filing of a claim of exemption until such claim has been determined by the court. See § 13-54.5-108(2), C.R.S.2005; C.R.C.P. 103(6)(b)(4). Then, after holding the requisite hearing, the court must determine the validity of the claim of exemption and enter judgment in favor of the judgment debtor to the extent such claim is valid. See § 13-54.5-109(2); C.R.C.P. 103(6)(c)(4); see also Nolan v. Dist. Court, 195 Colo. 6, 9, 575 P.2d 9, 11 (1978) ("[T]he exemption procedure is, by statutory command, an integral part of any garnishment proceeding. A garnishment proceeding may not be considered `determined' until decisions regarding the rights of parties to the action can be made, and nothing but ministerial functions remain to be done.").

Here, there is nothing in the record to suggest that the court held a hearing at which the parties were allowed to present evidence or that the court made any findings or determination regarding the validity of defendant's claim of exemption. Rather, the record suggests that the court summarily denied defendant's claim of exemption based on its finding that defendant failed to comply with its order regarding possession and ownership of the dog.

Although the court erred when it failed to determine the validity of defendant's claim of exemption and allowed the garnishment to proceed, such error was harmless, because the proceeds from a workers' compensation settlement are no longer exempt from garnishment once they are deposited into the judgment debtor's bank account. See C.R.C.P. 61 (error is harmless when it does not affect the substantial rights of the parties); Am. Nat'l Bank v. First Nat'l Bank, supra (court's application of the wrong test was harmless because application of the correct rule would have achieved the same result).

Colorado's workers' compensation exemption statute provides:

Except for amounts due under court-ordered support, claims for compensation or benefits due under articles 40 to 47 of this title shall...